CASE BRIEF NO. 2019-0053


“If a corporation knowingly permits one of its officers or any other agent to act within the scope of an apparent authority, it holds him out to the public as possessing the power to do those acts.”


CASE: Engineering Geoscience, Inc. vs. Philippine Savings Bank [G.R. No. 187262, January 10, 2019]

PONENTE: Justice Antonio T. Carpio

SUBJECT:
          A.       CORPORATION LAW:
                   i.        Section 23 of the Corporation Law of the Philippines
                   ii.       Board of Directors
                   iii.      Doctrine of Apparent Authority

FACTS:        EGI obtained a loan from PSBank. To secure the loan, EGI, through its President, Jose Rolando Santos, executed a Real Estate Mortgage in favor of PSBank over two parcels of land.

EGI was not able to make full payments of its loan so PSBank sent a demand letter demanding full payment of its loan obligation.

PSBank’s demand letter went unheeded, prompting PSBank to file a petition for extra-judicial foreclosure of mortgage under Act No. 135. The foreclosure sale did not push through on account of the Complaint With Prayer For Writ Of Preliminary Injunction and Restraining Order filed by EGI before the trial court. The trial court granted EGI’s prayer for issuance of writ of preliminary injunction and enjoined PSBank from proceeding with the foreclosure sale.

However, before the case materialized into a full-blown trial, PSBank and EGI submitted a Joint Motion For Approval Of Compromise Agreement  which was approved by the trial court in a Decision dated January 12, 1993.

Notwithstanding the above court-approved compromise agreement, EGI still failed to comply with the terms and conditions thereof. Thus, PSBank was constrained to file a Motion for Execution of the trial court’s Decision on their compromise agreement. After issuance of a writ of execution by the trial court, a Deed of Absolute Sale was executed in favor of PSBank over EGI’s mortgaged properties. After the properties were registered under its name, PSBank filed an Ex-Parte Motion For The Issuance Of A Writ Of Possession, which was likewise granted by the trial court.

However, EGI filed an Urgent Motion For Reconsideration. The motion was denied by the trial court.

EGI challenged the denial before the Court of Appeals (CA) by way of a Petition under Rule 45 of the Rules of Court. The CA dismissed EGI’s petition.

EGI’s petition having been dismissed, PSBank filed a Motion For Issuance Of Writ Of Possession before the trial court, alleging that with the dismissal of EGI’s petition by the CA and with the properties having been transferred under its name, PSBank is now entitled to the issuance of the writ as a matter of right. The same was granted in an Order dated March 17, 2005.

At this juncture, Attys. Nemesio R. Briones and Pacito M. Pineda, Jr. filed their Entry of Appearance with the trial court as collaborating counsels for EGI and subsequently filed an Urgent Motion For Reconsideration, alleging that it never received a copy of PSBank’s motion for issuance of writ of possession thus, invoking its right to due process.

In an Order dated April 29, 2005, the trial court denied EGI’s urgent motion for reconsideration.

Interestingly, EGI filed an Urgent Motion To Recall Order Dated April 29, 2005It was only at that point that EGI raised for the first time the alleged lack of authority of its former president, Jose Rolando Santos, to enter into the compromise agreement reduced in the Decision dated January 12, 1993.

PSBank filed its opposition arguing that EGI is now estopped from assailing the authority of its former president Jose Rolando Santos.

While the incidents were still pending resolution before the trial court, EGI filed a Petition For Annulment before the CA, praying that the Decision dated January 12, 1993 be set aside and declared unenforceable or null and void. The CA issued a Resolution dated July 6, 2005, dismissing EGI’s petition.

EGI returned to the trial court and filed a Motion To Set Aside Judgment Based On a Compromise Agreement, arguing that the Compromise Agreement entered into by Mr. Santos without the knowledge of and the proper authority from plaintiff EGI is not legally binding and not enforceable against plaintiff EGI. Thus, EGI insist that the Decision dated January 12, 1993 approving the same therefore should be set aside.

Thereafter, PSBank filed its Opposition to EGI’s motion arguing that EGI is now estopped from assailing the compromise agreement and the Decision dated January 12, 1993.

In the midst of this exchange of pleadings between the parties, the trial court issued an Order dated August 31, 2005 denying EGI’s Urgent Motion To Recall Order Dated April 29, 2005 for lack of merit.

Meanwhile, EGI filed a Motion For Reconsideration of the Order dated August 31, 2005, echoing its argument that in the absence of an SPA authorizing its former president Jose Rolando Santos, it cannot be bound under the compromise agreement subject of the Decision dated January 12, 1993.

The trial court issued an Order dated February 15, 2007, denying EGI’s motion for reconsideration for lack of merit. EGI filed a Motion for Reconsideration of the afore-cited Order. The trial court issued the now challenged Order dated August 24, 2007 reversing the trial court’s earlier Order dated February 25, 2007 and declaring the Compromise Agreement dated December 29, 1992 as null and void.

The tables having been turned against PSBank, it filed a Motion for Reconsideration contending that the present compromise agreement is stamped with judicial approval and thus its nature is different from an ordinary compromise agreement.

The trial court denied PSBank’s motion for reconsideration.

PSBank appealed to the CA which granted the same and reinstated the Decision dated 12 January 1993 which approved the Compromise Agreement entered into between PSBank and the former President of EGI without the knowledge, consent and authority of the latter.

This prompted EGI to appeal the case before the Supreme Court (SC) via Rule 45 of the Rules of Court. In its appeal, EGI would want to impress upon the courts that its former president acted fraudulently in filing the complaint against PSBank before the trial court and in subsequently entering into the compromise agreement without proper authorization from EGI’s board of directors. Thus, it is EGI’s theory that the trial court never acquired jurisdiction over it.

ISSUES:
A.       Whether EGI sufficiently proved that it was defrauded by its former president.
          a.       Who has the burden to prove the presence of fraud.
          b.       Whether EGI’s board of directors exercised due diligence in its dealings with PSBank.

B.       Whether the compromise agreement executed between EGI’s President and PSBank do not bind EGI due to lack of authorization from its board of directors for its President to enter into such agreement.
          a.       What is the doctrine of apparent authority?

RULING:
A.       It must be borne in mind that he who alleges fraud must prove it for basic is the rule that actori incumbit onus probandi. It is an aged-old rule in civil cases that he who alleges a fact has the burden of proving it and a mere allegation is not evidence. Fraud is never presumed, but must be established by clear and convincing evidence. Outside its bare allegation of fraud and the absence of a special power of attorney and/or secretary’s certificate, EGI never advanced any evidence to show how and why its former president deliberately concealed from its board of directors the complaint filed before the trial court and the subsequent compromise agreement.

It is evident that EGI is aware of its loan obligation with PSBank and the terms thereof under the Promissory Note which its former president executed together with its present representative, Imelda Santos. Absent from the records is any allegation on the part of EGI as to what action it has taken in order to comply with the terms of the promissory note under pain of losing its property nor to the demand sent by PSBank after it failed to comply therewith. Added to the same is the lack of any allegation by EGI that its former president made any representations or misrepresentations before the board regarding the status and/or payment of said loan obligation.

It is apparent that EGI’s board of directors failed to exercise the requisite diligence of a good father of a family in handling its affairs, specifically its loan obligation with PSBank which it is very much aware of. Also, there is no allegation as to whether the board of directors at the time of the execution of the compromise agreement is the same board of directors which is now claiming that its former president intentionally concealed and withheld the said complaint and compromise agreement.

Be that as it may, PSBank has no reason to doubt the authority of Jose Rolando Santos to enter into a compromise agreement with PSBank, the former being the president of EGI at the time of its execution. Both parties are presumed to be acting in good faith and with honesty of intention, free from knowledge of circumstances which ought to put one upon inquiry.


B.       A corporation, as a juridical entity, acts through its board of directors. The board exercises almost all corporate powers, lays down all corporate business policies, and is responsible for the efficiency of management. The general rule is that, in the absence of authority from the board of directors, no person, not even its officers, can validly bind a corporation [Cebu Mactan Members Center, Inc. v. Tsukahara, 610 Phil. 586 (2009)]. Section 23 of the Corporation Code of the Philippines provides:

SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees x x x.

x x x x

The records of the case show no evidence that EGI authorized Santos to file a Complaint and enter into a Compromise Agreement on its behalf. Neither was there any showing that EGI’s By-Laws authorize its President to do such acts.

EGI’s grant of authority to Santos, however, falls under the doctrine of apparent authority. Under this doctrine, acts and contracts of the agent, as are within the apparent scope of the authority conferred on him, although no actual authority to do such acts or to make such contracts has been conferred, bind the principal. Furthermore, the principal’s liability is limited only to third persons who have been led reasonably to believe by the conduct of the principal that such actual authority exists, although none was actually given. Apparent authority is determined only by the acts of the principal and not by the acts of the agent [Banate v. Philippine Countryside Rural Bank (Liloan, Cebu), Inc., 639 Phil. 35 (2010)].

EGI does not repudiate the act of Santos in signing the Promissory Notes; in fact, EGI made partial payments, offering the authority of Santos to borrow and sign the Promissory Notes. EGI, however, repudiates the act of Santos in entering into the Compromise Agreement extending the repayment of the loan under the Promissory Notes, which extension is actually beneficial to EGI. In fact, the Compromise Agreement bought time for EGI to pay the loan under the Promissory Notes but EGI still failed to pay. Having availed of benefits under the Compromise Agreement, EGI is estopped from repudiating it.

While the power and responsibility to decide whether the corporation should enter into a contract that will bind the corporation is lodged in its board of directors, subject to the articles of incorporation, by­ laws, or relevant provisions of law, yet, just as a natural person may authorize another to do certain acts for and on his behalf, the board of directors may validly delegate some of its functions and powers to officers, committees, or agents. The authority of such individuals to bind the corporation is generally derived from law, corporate by-laws, or authorization from the board, either expressly or impliedly by habit, custom, or acquiescence in the general course of business. Apparent authority, is derived not merely from practice. Its existence may be ascertained through (1) the general manner in which the corporation holds out an officer or agent as having the power to act or, in other words, the apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, whether within or beyond the scope of his ordinary powers.

It is a familiar doctrine that if a corporation knowingly permits one of its officers or any other agent to act within the scope of an apparent authority, it holds him out to the public as possessing the power to do those acts; thus, the corporation will, as against anyone who has in good faith dealt with it through such agent, be estopped from denying the agent’s authority [Lipat v. Pacific Banking Corp., 450 Phil. 401, 414-415 (2003)].

Related Case Briefs:
a)       Cebu Mactan Members Center, Inc. v. Tsukahara, 610 Phil. 586 (2009)
b)       Banate v. Philippine Countryside Rural Bank (Liloan, Cebu), Inc., 639 Phil. 35 (2010)
c)       Lipat v. Pacific Banking Corp., 450 Phil. 401, 414-415 (2003
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THINGS DECIDED:

A.       He who alleges fraud must prove it for basic is the rule that actori incumbit onus probandi.

B.       Fraud is never presumed, but must be established by clear and convincing evidence.

C.       A corporation, as a juridical entity, acts through its board of directors. The board exercises almost all corporate powers, lays down all corporate business policies, and is responsible for the efficiency of management. The general rule is that, in the absence of authority from the board of directors, no person, not even its officers, can validly bind a corporation.

D.      Under the doctrine of apparent authority, acts and contracts of the agent, as are within the apparent scope of the authority conferred on him, although no actual authority to do such acts or to make such contracts has been conferred, bind the principal. Furthermore, the principal’s liability is limited only to third persons who have been led reasonably to believe by the conduct of the principal that such actual authority exists, although none was actually given. Apparent authority is determined only by the acts of the principal and not by the acts of the agent.

E.       Apparent authority, is derived not merely from practice. Its existence may be ascertained through (1) the general manner in which the corporation holds out an officer or agent as having the power to act or, in other words, the apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, whether within or beyond the scope of his ordinary powers.

F.       If a corporation knowingly permits one of its officers or any other agent to act within the scope of an apparent authority, it holds him out to the public as possessing the power to do those acts; thus, the corporation will, as against anyone who has in good faith dealt with it through such agent, be estopped from denying the agent’s authority.

‘Stand by things decided’ ~ Stare Decisis


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